Question

How does the insurance industry define the terms threat, risk, hazard, and peril? Please provide references for Internet resources.

Answer 1

A threat is the possibility that a risk might happen.

Risk, peril, and hazard are terms used to indicate the possibility of loss, and are often used interchangeably, but the insurance industry distinguishes these terms. A risk is simply the possibility of a loss, but a peril is a cause of loss. A hazard is a condition that increases the possibility of loss. For instance, fire is a peril because it causes losses, while a fireplace is a hazard because it increases the probability of loss from fire. Some things can be both a peril and a hazard. Smoking, for instance, causes cancer and other health ailments, while also increasing the probability of such ailments. Many fundamental risks, such as hurricanes, earthquakes, or unemployment, that affect many people are generally insured by society or by the government, while particular risks that affect individuals or specific organizations, such as losses from fire or vandalism, are considered the particular responsibilities of those affected.

References:

• https://thismatter.com/money/insurance/risks-perils-hazards.htm